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Experts Agree: U.S. May Become A 'Simpsons' Episode And Need Platinum Coins Or IOUs

To keeping paying bills, America could resort to several unorthodox, if undignified, options.

Within a matter of weeks, now, the federal government may cease to operate normally. America has exceeded its statutorily mandated debt level. Congress is engaged in brinkmanship over whether it will increase the limit, and allow the government to pay bills it has already incurred.

You might already be familiar with one of the far-out fixes for this mess. A platinum coin—a $1 trillion platinum coin, minted by the Trasury Department, round and gleaming and possessed of an outstanding store of value. It’s very much a possibility, and it very well could work. Well, sort of.

A legal loophole allows the Treasury Department to mint and denominate platinum coins. (Normally the Treasury can not print money. It issues debt, and leaves money-printing to the Federal Reserve.) If the Treasury did mint that $1 trillion platinum coin, depositing it at the Federal Reserve would allow it to keep paying the bills, says Donald Marron, director of the Urban-Brookings Tax Policy Center. The Fed would book $1 trillion, just as it would book 25 cents if the Treasury sent a quarter instead.

Marron quickly concedes the mind-boggling nature of a $1 trillion coin, which would weigh more than 43 million pounds and occupy roughly 32,000 cubic foot (assuming about $1,600 a troy ounce of platinum): “Minting a trillion-dollar coin sounds like the plot of a Simpsons episode or an Austin Powers sequel. It lacks dignity.” For perspective, the coin would weigh as much as 100 Statues of Liberty; America’s copper-cast leading lady weighs in at 450,000 pounds. To solve this problem, Marron suggests creating smaller coins. “A single coin makes no policy sense,” he says. “No federal transactions occur in trillion-dollar increments.”

Money printing—d’oh!—money minting like this would surely cause massive inflation, right? (Here, fiscal conservatives are standing-by with comparisons to the Weimar Republic.) Not so, says Philip Diehl, the former U.S. Mint Director and Treasury chief of staff who wrote the very law allowing platinum coins we’re discussing. “There are no negative macroeconomic effects,” he said in a e-mail with The Washington Post. “This works just like additional tax revenue or borrowing under a higher debt limit. In fact, when the debt limit is raised, Treasury would sell more bonds, the $1 trillion dollars would be taken off the books, and the coin would be melted.”

Coins are one thing. They’re in use everyday, and have long served to facilitate the exchange of goods and services. (Though we should probably do away with the penny, too. Sorry, Abe.) Yet, if we aren’t comfortable with the (presto!) nature of platinum coins…perhaps IOUs would work. Technically they’d be registered warrants. Slips of paper that President Obama could authorize and provide to claims holders: federal employees, defense contractors like Raytheon or Lockheed Martin, Medicare providers and Social Security recipients, to name a few. People could then redeem it for cash when the Treasury can afford it.

“It would merely be a formal acknowledgment of a pre-existing monetary claim against the United States that the Treasury was not currently able to pay,” Edward D. Kleinbard, a USC professor, explained in a New York Times op-ed.”The president could therefore establish a scrip program by executive order without piling a constitutional crisis on top of a fiscal one.”

Hardly that far-fetched. California used these warrants in July 2009, running a tab of $2.6 billion. Golden State residents who had received the scrips were able to redeem them at banks for face value. So, in the near future, you might wind up headed to your local Wells Fargo or Chase or Bank of America branch to exchange these scrips for stone-cold cash.

Of course, the scrips work only because Californians assumed the state government would eventually get it together, fix the budget problems and restart the flow of money into the state’s coffers. We can suppose that federal lawmakers will eventually act likewise. They will, presumably, strike a deal, raise the debt limit—and avoid a Simpsons-worthy farce.

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not just sounds like a Simpson episode — was a Simpsons episode! This from economist Ed Yardeni’s research note this morning:

In 1945, President Harry Truman secretly printed a one-trillion-dollar bill with his photo on it. He did so to help pay for the post-war reconstruction of Europe. He entrusted Montgomery Burns with the mission of transporting the large denomination to the Europeans. However, the money never arrived, and the FBI suspects Burns kept the money. That’s the premise of an episode of The Simpsons, first aired on April 5, 1998 titled, “The Trouble with Trillions.” Homer Simpson is caught cheating on his taxes and is turned into an informant by the FBI. Along the way, the bill is stolen by Fidel Castro.

I liked the title of the first Link to the article: “Confederacy Of Dunces: U.S. May Need Platinum Coins Or IOUs”.. indeed it describes the group of people we have running our country better.

I don’t believe our problem is raising the debt limit and trying to convince fellow politicians and citizens that doing all these accounting shenanigans will fix our problem. The real problem is we are spending money we DONT have. If we spend money we had ,then we wouldn’t be having these conversations..

I have a couple of problems with this article. First, it’s REPUBLICANS in Congress who are blocking an increase in the debt limit. Simply saying “Congress” comes off as an attempt to avoid partisanship, when this is a PURELY political issue. Second, nobody is calling for the coin to contain $1 trillion in platinum – does a quarter contain 25 cents worth of metal – no. Does a dollar contain $1 worth of cloth and paper? No. Saying otherwise makes the whole idea seem even more ridiculous – which may have been the point of the distortion.

Hi Stanley, although I agree these skirmishes have a vastly political tone, the ever increasing level of debt this country holds on its balance sheet has real-world consequences. Each year, the percentage of tax dollar’s collected going straight to service the National debt increases and eventually there will be a reckoning.

As Steve pointed out, the issuance of such a coin would be largely symbolic and its “worth” would be designated as $1 Trillion without retaining the literal value of $1 Trillion. The actual costs of gathering enough plutonium to mint such a coin would probably cost the tax-payors approximately 1.1 Trillion dollars! LOL

The would work until import prices went up to reflect the true value of our currency. California could do this only because they didn’t need to pay China with a California currency. No one has been able to make monumental debt work for long. If it were possible to spend ones way to prosperity, there would be no poor. If we don’t change, we are toast, that seems to be what Obama wants.